Behind the Zhu Zhu mania

This year's hottest toy, a motorized, furry hamster, started its journey to store shelves as an idea inspired by YouTube.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Suzanne Kapner, writer

zhuzhu_pets.03.jpg
These robotic hamsters have names like Mr. Squiggles and Pipsqueak.
zhuzhu_pets_ball.03.jpg
zhuzhu_pets_wheel.03.jpg
Hottest holiday toys -- kid tested
TimetoPlayMag.com picks Barbie Fashionistas, Crayola Crayon Town and LEGO Star Wars among the top toys of the year. Our experts, all under the age of 10, weigh in.

NEW YORK (Fortune) -- Zhu Zhu Pets, the inexplicably cute robotic hamsters that have become this year's overnight holiday toy sensation, are selling out across the country.

A caller to the Times Square Toys R Us in Manhattan on a recent Wednesday morning was informed that the store was out of the hamsters and wouldn't be getting its next shipment until Friday. Wal-Mart (WMT, Fortune 500) and Target (TGT, Fortune 500) shelves are also bare of the toys, analysts said.

The National Retail Federation recently listed Zhu Zhu among the top 10 holiday toys. Zhu Zhus are even showing up on eBay, priced at $60 to $100. The runaway success has created a dream come true for Cepia, the small, St. Louis-based company that created the motorized pets.

Cepia founder Russell Hornsby, 56, who got his start in the toy industry as a designer for Mattel 35 years ago, became convinced that the toys would be a home run after watching thousands of YouTube videos of live hamsters.

The plush Zhu Zhu hamsters, which sell for $9.99 apiece and have names like Mr. Squiggles and Pipsqueak, look remarkably lifelike. They wiggle their noses and shimmy and shake through their hamster habitats just like the real thing.

Working with a factory in Shenzhen, China, Hornsby designed the first Zhu Zhu prototype in November 2008 and then began the uphill battle of trying to convince retailers to place orders. That was during the depths of the financial crisis and many big chains were unwilling to gamble on an unknown product, but Hornsby eventually convinced Toys R Us to test-market Zhu Zhu -- which means "little pig" in Chinese -- in a handful of Phoenix stores. All the Zhu Zhus sold out in two weeks.

"It was so hot, we couldn't believe it," says Gerald Storch, the CEO of Toys R Us. "We immediately bought as much as we could."

Although instantly popular, Zhu Zhu could have easily failed as thousands of new toys do each year. The sudden success of Zhu Zhu comes after a long career of ups and downs for Hornsby.

After Mattel (MAT, Fortune 500), Hornsby worked for a series of companies, including Hyman Products, which sold novelty items, such as pieces of the Berlin Wall. In 1981, Hornsby founded Trendmasters -- a toy company that held the license to make toys under the "Star Wars" and "Godzilla" names among others -- and sold it to larger rival, Jakks Pacific (JAKK), in 2001.

A year later, Hornsby started Cepia to make lawn and garden products such as automated trigger sprayers. Hornsby applied some of the technology he had developed for the garden products to Zhu Zhu, which helped give the animals their lifelike quality.

"What makes them so great is that they are unpredictable," says his daughter Natalie Hornsby, 23, who heads Cepia's marketing department. The underside of each hamster is covered in molded plastic -- called bump codes -- that keeps the furry creatures from repeating the same moves over and over again.

Once orders for Zhu Zhu started pouring in, Hornsby turned to his investors -- mainly family members, including his oldest daughter and wife, who also work for the company -- to raise more money. Natalie says Cepia, which has 16 employees, expects to sell as many as 10 million hamsters this year, and predicts Zhu Zhu could be a $500 million product by 2010.

"It's the single biggest hit he's had," says Needham & Company analyst Sean McGowan, who has known Hornsby for 10 years. McGowan points out that Zhu Zhu had an underground following from the very beginning, despite limited advertising, while other hot toys didn't become popular until celebrities called them out. Fisher-Price's Elmo, for instance, took off only after Rosie O'Donnell featured the doll on her television show.

Hornsby, who was traveling in Asia and unavailable for comment, is starting to attract interest from large toy companies, some of which have floated potential offers to buy Cepia, sources said.

Natalie also declined to comment on a possible sale of the company, but she said her father is a born risk-taker: Once when Hornsby was in Las Vegas, a friend of his remarked on the fact that he wasn't gambling. "I don't need to gamble in Vegas," he told the friend. "I gamble every day of my life." To top of page

Company Price Change % Change
AT&T Inc 34.82 -1.47 -4.05%
Verizon Communicatio... 46.98 -0.94 -1.95%
Facebook Inc 62.60 -0.43 -0.69%
Gilead Sciences Inc 74.80 1.94 2.66%
EMC Corp 25.65 -1.11 -4.15%
Data as of 9:37am ET
Index Last Change % Change
Dow 16,496.97 -17.40 -0.11%
Nasdaq 4,142.49 -18.97 -0.46%
S&P 500 1,876.56 -2.99 -0.16%
Treasuries 2.70 -0.02 -0.88%
Data as of 9:52am ET
More Galleries
Meet four kings of Alibaba's online retail empire Alibaba's shopping sites account for 80% of online retail in China. Meet four successful merchants. More
Cities where home prices are hitting new highs While home values nationwide are still down 13.5% from their pre-housing bust peaks, prices in these major housing markets have recovered -- and then some, according to Zillow. More
Cool cars from the Beijing Auto Show Here are some of the cars the world's automakers have unveiled this week for Chinese buyers. More
Sponsors
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.